When shares of apartment owners fell this week on disappointing revenue projections in New York and San Francisco, it was bad news for the property companies and good news for renters.

Well, some renters.

Between April 2015 and April 2016, the pace of rent increases slowed in at least 90 percent of luxury ZIP codes in Atlanta, Los Angeles, New York, and San Francisco, according to data compiled by Zillow. But i n each of those metropolitan areas, rent growth is less likely to be slowing down in cheaper parts of town.

The trend held in Boston, Houston, San Diego, and Charlotte, N.C., as well, said Aaron Terrazas, a senior economist at Zillow.

Using ZIP code data is painting with a broad brush and won’t reflect the experience of all renters, and the trend didn’t show up in every metro area Terrazas looked at. In Washington, D.C., for example, the pace of rent increases has been soft across the board, and in Seattle, rents are still increasing in expensive neighborhoods and cheap ones alike.

Still, it's worth asking: Why do rents appear to be softening sooner in the more expensive areas?

Rent growth in recent years has been driven by a striking shift in how Americans pay for housing. Thirty-six percent of U.S. households lived in rental homes in the first three months of 2016, according to the Census Bureau, up from 31 percent during the same period in 2005. Median asking rents rose from about $600 a month to $870. One reason rents are weakening in the pricier ZIP codes is that a lot of recent construction has been aimed at affluent renters, increasing the supply at the top of the market and reducing landlords' ability to increase rents.

In New York, for instance, new development has "skewed to the higher end," said Jonathan Miller, president of appraiser Miller Samuel Inc., which tracks the New York rental market. That trend, coupled with investors buying luxury condos and offering them for rent, has created a glut of high-priced options for lease.

It has also led landlords to woo renters with such sweeteners as a month's free rent or payment of broker's fees. In April, Manhattan renters received such incentives on 13 percent of all new leases, up from 2.7 percent a year earlier,
according to a report by Miller Samuel and brokerage Douglas Elliman Real Estate.

On the demand side, renters in some high-end neighborhoods may have reached the limit of what they're willing to pay, particularly in metro areas where high earners are concentrated in slowing industries. That could explain softer growth in Houston, where luxury rents are probably suffering from lower energy prices. In San Francisco, lower confidence among tech industry workers may help explain slower rent growth, Terrazas said.

The degree to which slower rent growth in high-end ZIP codes translates to lower prices elsewhere in the rental market remains an open question. In theory, creating a new supply of luxury apartments should ease competition for older units, making them more affordable to renters who make more moderate salaries.

But that process, called filtering, happens slowly. In the short term, people need to live somewhere, and renters priced out of the top ZIP codes may go apartment hunting in cheaper neighborhoods.

“The initial step down from the luxury segment may translate into more demand in cheaper markets,” Terrazas said.
Renters would benefit more broadly if wage growth caught up with rising rents or if the trend in home ownership rates reversed, said Daniel Hertz, who writes about housing policy at City Observatory. For now, "the number of people willing to pay higher and higher [rents] in more and more neighborhoods is still larger than the amount of housing to absorb that demand," Hertz said.